By ROBERT HARLEY 08/02/2010
The fund aims to generate total returns by investing predominantly in the local currency government debt of emerging market nations. The fund is managed with a view to outperforming the JPM GBI-EM index - a recognised emerging market local currency sovereign bond index, by 3% p.a. before fees. The fund’s current distribution yield is about 7%, portfolio duration is 4.3 years (compared to about 7 years for UK quality corporate bond fund) and average credit quality about BBB.
The emerging market local currency bond peer group is still fairly young; performance history invariably only dates back as far as late 2006. Investec was amongst the first of the fund management groups to launch a product focusing on this market. Historically total returns returns in the asset class have been generated evenly from income and the appreciation in the value of emerging market currencies; yield curve related total returns have been fairly minimal. Given the strength of the emerging market balance sheets, their more evenly balanced budgets, combined with strong currency reserves, we believe the asset class has come of age.
Prospective investors should be wary of the shorter term volatility that can be associated with these bond funds, this is driven primarily by volatility in the underlying currencies relative to sterling - there is no Sterling hedge. The fund is awarded a 3 star rating.